As the markets prepared for one of the splashiest big-index inclusions of the past decade (more on that in a moment), investors found little else to be optimistic about Friday.
COVID stimulus negotiations remained exactly where they’ve been the past couple of days â€“ “Kind of the same place, no progress,” Senate Republican Whip John Thune said Friday. An omnibus spending bill was in the same state of limbo; Congress might need to pass a stopgap bill to keep the government running until a final bill is hammered out.
The Dow Jones Industrial Average started the day with marginal gains but weakened as the day progressed, but an afternoon pop limited the damage to a 0.4% decline to 30,179. The rest of the major indices followed suit.
Other action in the stock market today:
- The S&P 500 declined 0.4% to 3,709.
- The Nasdaq Composite slipped marginally to 12,755.
- The small-cap Russell 2000 lost 0.4% to 1,969.
- Gold futures edged 0.1% lower to $1,888.90 per ounce.
- U.S. crude oil futures jumped 1.5% to settle at $49.10 per barrel.
Video: This financial advisor says investors are underweight China, but shouldn’t be (CNBC)
The Big Rebalancing Act
One of the biggest underlying themes Friday had to do with just one stock: Tesla (TSLA).
It’s not that the electric vehicle maker continued its rip-roaring 2020 rally, which has seen it gain 707% and brought its worth to $659Â billion, with aÂ 6.0% gain today on extremely high volume. It’s why.
Tesla will join the S&P 500 as of Monday, Dec. 21, and as we discussed in today’s free A Step Ahead e-letter, this is a massive rebalancing â€“Â one that requires S&P 500-tracking funds to gobble up some $80 billion in shares.
But that’s not the only rebalancing going on.
The tech-heavy Nasdaq 100 â€“ a growth-heavy collection of 100 of the Nasdaq’s largest non-financial companiesÂ â€“ is welcoming a few new components to the mix, including Match Group (MTCH) and Peloton Interactive (PTON). However, to make room, a few companies, including Expedia (EXPE) and Take-Two Interactive (TTWO), will be sent to the Nasdaq Next Generation Index â€“ the next 100 largest stocks.
That’s hardly a death sentence. “If you look back at the movement of companies between the Nasdaq 100 and the Nasdaq Next Generation Index from 2009 to the present, 17 of the companies that moved into the Next Generation Index were eventually added back into the Nasdaq 100 Index,” says Ryan McCormack, Factor and Core Equity Strategist at Invesco, who also notes that the average 12-month return of companies following the move down was 18.8%, with a median return of 9.6%.
Investors can get access to both indices, as well as other connected strategies, via a number of growthy exchange-traded funds (ETFs). Take a look.